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North Dakota's in-state investment program needs looser rules, legislative leaders say

Legislation passed last year aims to invest up to 10% of the $7.9 billion Legacy Fund in North Dakota firms. But part of the program hasn't gotten off the ground.

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Members of the North Dakota Legacy Fund Earnings Committee watch a presentation from the Retirement and Investment Office at the North Dakota Capitol on Thursday, Sept. 22, 2022.
Jeremy Turley / Forum News Service
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BISMARCK — North Dakota lawmakers approved a popular proposal last year to invest a chunk of the state's massive oil tax savings account in local companies and ventures, but a major piece of the program still hasn't gotten off the ground.

Legislative leaders now say the rules governing in-state investment must be loosened to allow the program to take flight.

The original 2021 bill sponsored by Bismarck Republican Rep. Mike Nathe aimed to invest up to 10% of the $7.9 billion Legacy Fund in North Dakota firms.

About 3% of the fund is earmarked for emerging local companies, and managers of that money began making investments last year.

But state officials charged with investing the remaining 7% of the fund in North Dakota companies say part of the bill requiring a minimum return on investment has become an obstruction.

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The law says in-state investments must yield at least the same return as the five-year average return of all other Legacy Fund investments.

Confining the market to only North Dakota makes it difficult to find investments that are just as sound and profitable as the rest of the Legacy Fund's investments, said Scott Anderson, the chief investment officer at the Retirement and Investment Office.

"The biggest challenge is being able to compare an investment in state to other investments. The opportunity set is smaller than one might think, and it's slower to achieve," Anderson told a panel of lawmakers on Thursday, Sept 22.

All four House and Senate party leaders agreed that the law puts too many guardrails on the in-state investment program and should be eased to reflect the economic realities of operating in a shrunken market.

Outgoing Senate Majority Leader Rich Wardner, R-Dickinson, said holding the in-state investments to the same standards as other investments is counterproductive and unrealistic.

House Minority Leader Josh Boschee, D-Fargo, said Legacy Fund investments should be expected to generate a financial return, but they should also benefit North Dakotans more holistically. He called for more oil tax dollars to go toward infrastructure projects.

Nathe said he would be willing to take a look at changes to the program next legislative session, but he noted there are still local investment deals the Retirement and Investment Office should be making in the meantime.

Some aspects of his bill have been very successful, including a provision that sets aside Legacy Fund money for low-interest loans to local firms, Nathe said.

Jeremy Turley is a Bismarck-based reporter for Forum News Service, which provides news coverage to publications owned by Forum Communications Company.
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